September 2012 | Outsourcing Blog | BPO Industry Updates and Articles

Growth in the APAC BPO Market Anticipated

The latest study from Gartner Inc. was discussed in an article posted at BizTech2.in.com. It denotes some of the IT research firm’s predictions about the changes in the business process outsourcing (BPO) market in the Asia-Pacific (APAC) region (sans Japan).

As stated in the report, the BPO market in the region is set to grow to $9.5 billion by 2016, as it is striding to reach $6.45 billion by the end of this year, up from last year’s $5.9 billion.

According to T.J. Singh, Research Director at Gartner, the BPO market in the APAC region is a great source of opportunities for outsourcing providers as it is not as saturated as the other locations. Apart from saving on operational costs, APAC clients are said to be looking for flexible and quality services that can incorporate the best technology available.

Australia dominated the BPO market in 2011, accounting for over $4.63 billion, which is far greater than India’s $1.26 billion. Meanwhile, the most notable markets in APAC are still China and India.

The outsourced processes came from industries such as banking and financial services, communications, government (both local and federal), technology, retail, and travel and transportation.

As the economic issues in the US and Europe linger throughout the world, APAC clients are equally struggling on learning the ropes of the industry. Moreover, it is anticipated that as BPO grows in the region and becomes more accepted, challenges such as attrition and wage inflation will arise.

The BPO market can be divided into four major segments, each having smaller divisions. These are:

According to Singh, service providers for the APAC market (excluding Japan) come from regional and international locations. The market is led by service providers from India and large, world-renowned suppliers, along with a handful of niche BPO service providers.

Labor costs increasing in the offshore outsourcing space

It appears that India is losing its lustre in the offshore outsourcing space as labor costs are continuously increasing. In a press release posted at ComputerWeekly.com, Arvato’s Global BPO Director, Debra Maxwell shares the crucial changes happening in the outsourcing industry and the latest factors that are highly preferred by IT clients.

Several factors apart from cost efficiency were identified. These are the competency of the workforce and world-class infrastructure of other emerging offshore outsourcing destinations, which is probably why the global outsourcing scene is shifting. Apart from being more economical, buyers are now looking for an efficient provider that will help them satisfy their own set of customers even more and improving other processes.

Putting cost issues aside, in order for other providers to come up against India, they should offer solutions via simple processes. Maxwell also cited that buyers are looking for offshoring locations with a stable political environment, strong government support, and ample security.

Of course, she said clients will also look at the capacity of the infrastructure and technology as their processes heavily rely on the internet and hardware. Another factor is the size of the English-speaking workforce, with at least similar cultures.

She added that the Philippines is emerging as the newest option for US and other English-speaking companies since Filipino employees assigned to voice-based processes have a neutral accent.

The Philippines got the highest score in the GlobalEnglish study which rates the fluency of employees in business English, surprisingly beating the UK, Canada, and India.

Furthermore, the BPO executive said each region has its strengths and weaknesses when it comes to outsourcing which is why buyers should do their homework. China, for instance, is the strongest contender for ITO processes. The Philippines, on the other hand, is also getting recognized for high-valued outsourcing services.

Benefits of Outsourcing

Gery Menegaz, an executive IT architect for IBM, recounts his experience of outsourcing IT in an article at ZDNet.com. He said back in the day, cost reduction was the primary reason organizations outsourced some of their processes to the extent of putting up virtual offices in as far as India. But as the price of subcontracting to India increased over the years, the cost saving premise was soon gone.

Moreover, outsourcing wasn’t considered as a feasible long-term strategy as businesses are only fixated on acquiring the services of less expensive contractors.

Menegaz said in his experience working in the IT outsourcing industry, providers were seen as partners that will add value to the company’s processes by adding flexibility and initiating innovation. After a recent survey, he was able to determine that the pros and cons of outsourcing are still 50/50.

To maximize the benefits of outsourcing, organizations as well as providers should look into the details of the project, and customize a strategy that will benefit, if not optimize, all the departments of the company.

Meanwhile, here are three reasons that make outsourcing a highly sought after process by many businesses:

Outsourcing is still cost-effective. A good example is the CEMEX outsourcing deal which involves finance, accounting, and human resource functions and was closed by IBM. According to a press release, CEMEX was able to save nearly US$1 billion throughout the duration of the contract. The operation was also successful in improving internal processes and business agility.

Outsourcing enables the company to adapt more efficiently. Outsourcing is a great way to resolve problems brought about by the constant change in technology, market behaviour, and fewer resources. Outsourcing gives businesses an opportunity to work with a larger group of skilled workforce.Another reason that’s driving businesses to outsource is the fact that the specific skill they are looking for is not available locally or is far more expensive. Also, the technology they need might not be available internally.

Improving Client-Provider Relationships and Operations

With the recent conclusion of ISG’s Sourcing Industry Conference, Director Cynthia Batty shares at Info.ISG-One.com the resounding concern of clients, specifically innovation for their businesses.

Providers present at the conference responded on the issue, reiterating that in order for them to come up with feasible, innovative ideas, clients have to work with them. Parties should be able to identify who’s responsible for what, which is why vague clauses in contracts regarding innovation can only fuel more confusion.

There are several instances wherein providers think that their ideas are ignored because the clients do not trust them fully, or the clients think that they are not capable of creating innovative technology, processes, etc. The providers noted that they are demotivated, they don’t even believe in the term “gainshare”. However, both parties should be on the same page and be driven to create something new, as innovations could be crucial to the growth of a client’s business and beneficial for the providers as well.

Here are some of the ways services relationships can work through the topic of innovation:

1) Prepare a detailed definition of innovation. First off, both parties should understand which areas of the operation are susceptible to innovation and which can be long-term or short-term goals. In this way, clients will not focus on the costs and other factors that could cause delay. 2) Consider other departments of the business. Innovation can either cover a specific area of a business, or the business as a whole. Creating an innovative plan that will affect all aspects of the business brings more value to the business. 3) Explain to clients why they shouldn’t skimp on funds. Costs are usually the main concern of clients, and there will be times when the materials needed should be paid outright. Explain to the clients why they need to pay, or what the additional technology is for. 4) Innovation and improvement are two different things. Different levels of authority in businesses may regard innovation differently. For business owners, they would probably want new processes or technology, but for the managers, they might expect innovation that can improve business operations. Providers need to analyze what their clients want and deliver innovation without disrupting other functions.

5) Try multisourcing. The client can use multiple providers, each focusing on certain functions of the business. Of course, the client will act as the central hub that will direct all processes, overseeing if each department is getting the appropriate attention.

Results from UK IT outsourcing contracts examined

An article posted at ComputerWeekly.com highlights crucial information from KPMG’s annual UK IT Service Provider Performance Study. Six hundred thirty (630) UK IT outsourcing contracts amounting to £14bn were examined and 230 firms with a total IT budget of £30bn were surveyed.

The study denotes that 76% strongly consider outsourcing IT services and cite cost efficiency as the most crucial factor, along with access to skilled workforce and flexibility. However, only 19% said they will outsource more, which is less compared to last year’s 25%.

Included in the report were the developments in delivery models and benefits of proper insourcing, nearshoring, and offshoring practices.

Thirty percent of respondents came from financial services firms, 58% of which stated they will outsource more next year. Furthermore, 90% of public sector organizations are outsourcing IT, 29% of which procure IT services abroad.

Other segments in technology outsourcing like application development and management, infrastructure management, and network services were also analyzed.

According to KPMG’s Technology Shared Services and Outsourcing Advisory Head Lee Ayling, technology and outsourcing are fuelling UK businesses, and in a rapidly evolving industry, IT providers should be able to accommodate new demands and trends.

Nonetheless, UK businesses are still anticipated to spend for IT services, but providers shouldn’t be complacent as this could change over time.